The 2017 “Tax Cuts Act” and its Impact on the Federal Estate and Gift Tax Law

December 31, 2017

Pending legislation could have a major impact on the Federal Estate and Gift Tax. H.R. 1, the “Tax Cuts and Jobs Act” (“Tax Cuts Act”) released on November 2, 2017 by the Ways and Means Committee of the U.S. House of Representatives, would double the basic exclusion amount for gift and estate taxes from $5 million to $10 million per person, indexed for inflation. It appears that, if the Tax Cut Act is enacted, in 2018 a single person could shield up to $11.2 million, and a married could shield up to $22.4 million, due to inflation adjustments. The Tax Cuts Act would repeal the estate tax and the generation skipping tax in six years, as of Jan. 1, 2024, while still maintaining a full stepped-up basis for inherited property. (The retention of the step-up in basis had been in doubt.)

The Tax Cuts Act keeps the Federal Gift Tax intact (still “unified” with the Federal Estate Tax), with a $10 million basic exclusion amount for gifts (adjusted for inflation). However, it provides a break in 2023: a new lower top rate of 35%, down from 40%.

There is substantial opposition to the Federal Estate Tax repeal. “This is a tax plan that fails to address fiscal soundness and morality,” stated Gene Sperling, former director of the White House Economic Council under Presidents Bill Clinton and Barack Obama, on a Center for American Progress conference call discussing the bill. The Center considers the federal estate tax repeal to be both contrary to public policy and immoral.

According to the Joint Committee on Taxation, the federal gift and estate tax reduction/repeal provisions would cost the Treasury an estimated $172.2 billion over the next 10 years.

The Tax Cuts Act still has many hurdles to overcome before it becomes law. A similar bill needs to be introduced in the Senate; the two bills will need to go to a conference committee of both houses of Congress; joint legislation must be passed by both houses; and the final legislation must be signed into law by the President, all before December 31, 2017. Stay tuned!

Please contact Len Davis if you have questions about the Tax Cuts Act and its impact on your estate plan.